Governor Talks - Canada: Economic Growth and Inflation: the View from Canada

SPEAKER


Tiff Macklem Governor of the Bank of Canada

Tiff Macklem was appointed Governor of the Bank of Canada in June 2020 for a seven-year term. Mr. Macklem first joined the Bank of Canada in 1984 and held various senior positions including Chief of Research and Advisor to the Governor. He was appointed a Deputy Governor in 2004 and Senior Deputy Governor in 2010. During the Global Financial Crisis, Mr. Macklem was Associate Deputy Minister at the Department of Finance, and represented Canada at the G7, G20 and Financial Stability Board. From 2014 until his appointment as Governor, Mr. Macklem was the Dean of the Rotman School of Management at the University of Toronto.


Nigel Chalk Acting Director of the Western Hemisphere Department (IMF)

Nigel Chalk is the Acting Director of the IMF’s Western Hemisphere Department and mission chief for the U.S. He also oversees the Fund’s work in a range of countries in South America, Central America, and the Caribbean. Previously he was head of Non-Japan Asia Research at Barclays, based in Singapore. Prior to that, he was the IMF’s mission chief for China. Since joining the IMF he has worked on a range of emerging market countries, including Russia, Korea, Brazil, and Argentina. He holds a PhD in Economics from UCLA and a Master’s of Science degree from the London School of Economics.

SUMMARY

Moderator: Nigel Chalk, Acting Director of the Western Hemisphere Department,

IMF Guest: Tiff Macklem, Governor of the Bank of Canada (BoC)

Key Points:

Monetary policy stance of the BoC. The BoC was among the first AE central banks to front load monetary tightening and keep inflation anchored. The BoC is seeking to assess how the interest rate path is working its way into the economy, including to understand if monetary policy has been sufficiently restrictive to bring inflation back to the 2 percent target. This target has served the Canadian economy well over the past thirty years. Low inflation strengthens competitive forces and anchors expectations.
Monetary cycle and transmission mechanisms. Typically, the full effect of monetary policy on inflation kicks in with a lag, impacting some sectors of the economy faster than others. Monetary policy works better when its objectives and how they are attained are understood. The BoC is providing more information to the market on GDP and inflation forecasts, and—following the Fund’s advice—has begun publishing the BoC’s deliberations, which provide markets with insights into the central bank’s perspective. Challenges can arise when markets do not understand or do not believe the central bank.
Financial stability. The BoC responded quickly and forcefully to stabilize Canada’s financial markets and limit the spillovers from stress in the US and other international financial markets. The central bank will remain vigilant, and supervisors are working with banks to ensure diligent risk management. The financial system, like the rest of the economy, must adjust to higher interest rates. A core function of the central bank is to serve as the lender of last resort and thus it prepared to provide liquidity against good collateral.

Quotes:

“If you have got inflation centered around 2 percent, people can plan their finances better, they can plan their budgets and spending with confidence that their money is going to hold its value. For all these reasons it is important to get inflation back to 2 percent.” Tiff Macklem (11:32)
“Monetary policy works better when everybody understands it, they understand the objective, what we are doing to achieve the objective and the transmission mechanism.” Tiff Macklem (15:57)

Contributor: Najla Nakhle

PHOTOS